US Banking SystemIn 1863, as a means to help finance the Civil War, a system of national banks was established by the National Currency Act. Each bank had the power to issue standardized national notes based on bonds of the United States held by the bank. The first national banking system had two major weaknesses. The first was an “inelastic” currency and the second was the lack of liquidity. During the last quarter of the 19th century and the beginning of the 20th century the United States economy went through a series of financial panics. One of the most serious panics, in 1907, made it clear that there was a need for renewed calls for banking and currency reform. The following year Congress passed the Aldrich-Vreeland Act providing for an emergency currency and established the National Monetary Commission to study banking and currency reform..